NCLT Upholds Partial Claim Admission in Project-Specific Insolvency Resolution

Assets Care and Reconstruction Enterprise Limited's claim against LGCL Urban Homes restricted to mortgaged units in "United Towers" project.

In a significant ruling by the National Company Law Tribunal (NCLT), Bengaluru Bench, the tribunal has dismissed the application filed by Assets Care and Reconstruction Enterprise Limited (ACRE) seeking full admission of its financial claim against LGCL Urban Homes (India) LLP under the Corporate Insolvency Resolution Process (CIRP) for the "United Towers" project. The decision, handed down by Shri Sunil Kumar Aggarwal, Member (Judicial), and Shri Radhakrishna Sreepada, Member (Technical), affirms the Interim Resolution Professional's (IRP) partial admission of ACRE's claim based on the mortgaged units within the project.

The case revolved around two loan agreements extended by the original lender, PHL Fininvest Private Limited, to LGCL Urban Homes, which were later assigned to ACRE. ACRE contended that the loans, totaling over Rs. 101 crores, were disbursed at the entity level for working capital across multiple projects, including "United Towers," and sought classification as a Secured Financial Creditor.

The tribunal, however, ruled that ACRE failed to provide project-specific evidence of fund allocation and utilization for the "United Towers" project. The IRP's demands for end-use certificates, monitoring reports, and project-specific documents during the claim verification process were deemed valid and necessary, given the insolvency resolution was restricted to this specific project. The tribunal highlighted the importance of vigilance by creditors regarding the utilization of funds, especially when claiming financial creditor status in a project-specific CIRP.

Despite ACRE's assertion that fund allocation was at the discretion of the Corporate Debtor, the tribunal emphasized the necessity for creditors to provide concrete evidence of debt owed by the specific entity or project under resolution. The IRP's decision to admit claims based on the mortgaged portion of the project, supported by RERA costing parameters, was upheld as compliant with statutory requirements.

The ruling also addressed the classification of ACRE as an "Other Creditor" rather than a "Secured Financial Creditor," citing the lack of project-specific fund utilization evidence, a stance backed by Supreme Court precedents. The tribunal supported the IRP's approach and found no grounds to alter the classification.

This decision reinforces the need for financial creditors to provide detailed and project-specific documentation when seeking claim admissions in insolvency resolutions restricted to specific projects. The tribunal's ruling underscores the meticulous verification process required to ensure claims are substantiated with concrete evidence of fund utilization.

Bottom Line:

Corporate Insolvency Resolution Process (CIRP) - Financial creditor must provide project-specific evidence for claim admission in project-specific insolvency resolution.

Statutory provisions: Insolvency and Bankruptcy Code, 2016 Sections 5(8), 60(5); Regulations 13, 14

Assets Care and Reconstruction Enterprise Limited v. Ms. Ramanathan Bhuvaneshwari, (NCLT)(Bengaluru Bench) : Law Finder Doc id # 2821892